Yatani eyes window to break Kenya debt ceiling – Business Daily

Finance Cabinet Secretary Ukur Yatani. PHOTO | FRANCIS NDERITU | NMG
The National Treasury will have a free hand to breach the new debt ceilings as long as it can explain to parliament what caused excessive borrowing if changes to the law are approved.
Treasury Cabinet Secretary Ukur Yatani is seeking views from the public on the proposed changes to the law that will see Kenya revert to a debt ceiling based on a percentage of the size of the economy and allow Cabinet secretary Ukur Yatani to breach the cap with explanation to MPs.
The draft legal amendments to the Public Finance Management Act and facilitating regulations put a cap on public debt at 55 percent of gross domestic product (GDP) from the current legal limit of Sh9 trillion.
The proposed limit of 55 percent of GDP in net present value terms is in line with international standards for a lower-middle-income economy such as Kenya which also seals borrowing at 70 percent of GDP in nominal terms.
“Currently the debt limit approved by Parliament is not anchored on sustainability. There is, therefore, need for Parliament to be advised on the sustainable debt levels as they set the public debt limit,” Mr Yatani says in the notice.
The Public Finance Management (Amendment) Bill 2022, however, allows Mr Yatani to surpass the borrowing limit under circumstances such as “depreciation of the shilling, the significant balance of payment imbalances or abrupt fiscal disruptions”.
“Provided that if, at any time, the public debt exceeds the limit set … the Cabinet Secretary shall provide Parliament with a written explanation on the said circumstances leading to the breach of the limit and provide a time-bound remedial plan,” the bill reads in part.
Kenyans have a week to March 15 to submit their views on the proposed changes to PFM laws and regulations.
An analysis by the Parliamentary Budget Office — a professional unit that advises lawmakers on financial and economic matters — showed that Kenya’s public debt at Sh7.99 trillion last September was equivalent to 64.2 percent of GDP on net present value terms, higher than the 55 per cent being proposed.
A separate analysis by the Institute of Public Finance-Kenya (IPFK), a think-tank, suggests the nominal debt stock at nearly Sh8.03 trillion was equivalent to 66.2 per cent of GDP.
Economists at IPFK have backed the proposed changes to limit borrowing based on a percentage of the GDP as opposed to an absolute figure, arguing it will enable analysts to compare Kenya’s debt vulnerabilities with economies of a similar size.
“When it’s put as a share of GDP, you should at a glance be able to see how much liabilities in relation to assets we have because the GDP measures the wealth of a country,” head of research at IPFK John Nyangi said in an interview in Nairobi.
The National Assembly last month successfully overturned a recommendation by the Budget and Appropriation Committee that had limited borrowing for the financial year starting July at Sh400 billion in a bid not to breach the legal limit because debt is projected to cross Sh8.6 trillion mark in June.
The House instead retained the Sh846 billion proposed by the Treasury in the 2022/23 Budget Policy Statement (PBS) with a rider that the Treasury will present amendments proposing a higher limit before June for approval.
“We are between a rock and a hard place. We must change the ceiling or else we’ll not have money for development in the budget. It’s a very painful move, but it has to be taken,” Mr Nyangi said.
“But then remedial measures should be put in place to bring down the fiscal deficit (bridged through borrowing) within the debt limit in the medium term.”
The lawmakers raised the debt ceiling to the current Sh9 trillion from Sh6 trillion previously in October 2019.
President Uhuru Kenyatta’s administration has relied on loans to build roads, bridges, power plants and the standard gauge railway (SGR) since they took power nine years ago.
This has ballooned public debt from Sh1.89 trillion the Jubilee administration inherited from retired President Mwai Kibaki to a projected Sh8.59 trillion by end of this fiscal year in June.
This means Mr Kenyatta’s government will have borrowed at least Sh6.7 trillion by the time he leaves office.
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By Kwetu Buzz

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